Currency Coin Toss
Burke, Gibbons, Modern Trader
It's hard enough to figure out where currency markets are heading without worrying about data sources. The currency markets, once a trend follower's dream, became the bane of "momentum" traders, but now seem to be entering a period of megatrends.
Getting data for analyzing the currency futures market is easy compared to the cash market. Currency futures at the International Monetary Market (IMM) of the Chicago Mercantile Exchange list only three contracts at a time, and the front month retains most of the volume and open interest until a few days before roll-over. All IMM contracts are denominated in dollars, which means the quotes represent how much it costs to buy one unit of the other currency.
Unfortunately, the cash market generally works the other way. For all but the British Commonwealth nations, dollar-currency cross-rates are denominated in the other currency. Whereas the IMM Deutsche mark is in dollars per D-mark, the interbank currency market quotes in D-marks per dollar. When you plot futures prices next to cash prices, they look like completely different charts.
To make a rough conversion between the futures price and the spot market price, you can take the reciprocal of the IMM price to get the cash quote. For a better conversion, add or subtract the day's "points," a factor that adjusts for the time value of the futures contract relative to the spot market quote. These points change every day as expiration draws closer.
Getting historical data for the interbank cash currency markets isn't always easy, and getting tick data is harder still. One nice thing about futures markets is all market participants' views filter through the pit.
The currency cash market has no single concentrator -- the "exchange" moves around the globe with the sun. Unlike at the exchanges, transaction prices on the cash market aren't readily available. Only bids and asks are available, and market participants alone know the transaction prices. …